When the war ends, Moscow will come looking for its money, and European taxpayers will be legally bound to return it. And that’s just part of the problem.

By Rafael Pinto BORGES

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It was said by the ancients that those whom the gods wish to destroy they first make mad. Brussels has a new idée fixe: expropriating hundreds of billions of euros in Russia’s financial reserves to keep the fires of war raging for just a little while longer. Nearly €211 billion is idle in European banks, most of it at Belgium-based Euroclear, and another €90 billion is held elsewhere in the G7. An estimated $300 billion of Russian sovereign riches are frozen worldwide.

To Brussels, it looks like a potential windfall: the perfect way to keep hostilities going now that Washington has grown tired of paying for the conflict, and all this without actually having to carry the financial burden itself. But Europe’s leaders are acting out of spite and endless, spectacular hubris. To anyone with a sense of history, it looks like they are placing a financial as well as a political bomb under Europe’s foundations, utterly oblivious to the consequences their peoples will have to bear. It’s hardly a surprise that Belgium is begging for calm on this, with Prime Minister Bart de Wever calling the plan “completely insane”.

To make the idea sound more palatable—and less egregiously illegal—the Commission is arguing that it will not be *expropriating *anything; rather, it will merely use Russian taxpayers’ money deposited in European banks to guarantee a so-called European “reconstruction loan” to Kiev. The only way this safeguards European taxpayers is if Russia is subsequently defeated in the field of battle and its government agrees to assume ownership of the said loan, therefore accepting to pay enormous war reparations to Kiev analogous to those imposed on the German Empire by the Versailles Treaty of 1919. The problem here is that everyone in their right mind understands that the scheme is absurd from head to toe. Russia will obviously not lose in Ukraine; as Washington correctly puts it, the Russians are well on their way to complete victory in the field, and if Kyiv refuses talks, things will surely end unpleasantly for it. This also means, naturally, that Moscow will not accept paying reparations to the Ukrainians, regardless of whether this stance is just or unjust. When the war ends, therefore, Moscow will come looking for its money, and European taxpayers will be legally bound to return it.

It gets much worse. International law draws a bright red line between freezing and seizing. Freezing assets during the midst of a war in which Europe is not directly involved, however audacious, is one thing—assuming ownership over them is quite another. Sovereign immunity is not a technicality of statecraft but a cornerstone of the modern financial system. The moment the EU announces that it can take over the central bank reserves of another nation unilaterally, it disintegrates the very basis on which global confidence in Western banking rests.

That presumption has been built incrementally, since the end of the Second World War, via the Bretton Woods institutions, the stability of the dollar as a reserve currency, and the euro’s subsequent role as a reserve currency. The foreign governments that maintain their deposits in New York, Frankfurt, or Paris do so out of trust that their deposits are safe from political seizure. Once that presumption is gone, it will not return.

China, Saudi Arabia, and the Gulf sovereign wealth funds are already waiting with bated breath. The People’s Republic foreign exchange reserves, the world’s largest, amount to an estimated $3.3 trillion overall; about 20% of that, or some 660 billion, is held in euro. India, too, is believed to hold about one-fifth of its own forex reserves in euros. Countries like Saudi Arabia, Qatar, or the United Arab Emirates all hold immense euro-denominated wealth estimated in the many hundreds of billions. If the EU shatters the taboo and takes Moscow’s money, there will be an exodus. It might not occur suddenly. But it will occur undoubtedly and irreversibly, as countries diversify into yuan, gold, or the new BRICS clearing systems. The euro—already a fragile currency anchored on unstable, debt-ridden economies like Germany and France—can ill afford such a reputational blow now.

The harm, therefore, would not be limited to Moscow.Putin understands this and has even said so publicly: he has dared our immature political class to walk into this trap, and some part of him probably wishes it will.

The larger risk, however, is political, not fiscal. It is in what such an action would portend for Russia itself. The likes of von der Leyen and Kallas imagine that the looting of the Kremlin’s money will “embarrass Putin”. In fact, it would be a major political victory for the Russian leader and surely cause deep resentment among the Russian people—after all, the legitimate owners of this money. To most, it will prove that Europe is not a partner, nor even a rules-subject opponent, but a thief and a hypocrite quite open to breaking every rule in the book when and if it serves its interests. That impression is more valuable than most in Brussels would be willing to admit—Russia, after all, is Europe’s neighbour and is not going anywhere. Public opinion there is not insignificant. One does not need to sympathise with Russia to understand that.

Whereas Brussels’ expropriation insanity is sure to infuriate the Russians and lead the continent down the path of financial seppuku, it seems unlikely that it will impose deep damage on Russia itself. Since 2022, after all, Moscow has repatriated nearly all its non-Western reserves and topped up its gold reserve to 2,360 tonnes—or about some $110 billion at current prices. Its trade balance remains in surplus, supported by energy exports redirected into Asia. If the reserves are withdrawn by Europe, Moscow will retaliate using European companies’ assets in Russia, worth an estimated $288 billion. Once everything is put together, it is difficult to see this not backfiring spectacularly.

What would it achieve, then? Ukraine would be given a token payment of money, maybe just sufficient to cover a year’s worth of war expenses, at the cost of blowing apart the credibility of the European financial system. Russia would be left poorer but likely more obstinate. China would be offered another argument to present to the rest of the world on European unreliability. And Europe, having stolen another nation’s reserves in a bout of moral narcissism, would discover that it is easy to wage financial war but difficult to regain trust. None of it will end well.

*Original article: *europeanconservative.com